How to avoid UBIT from a controlled subsidiary.IRS An abbreviation for the Internal Revenue Service, a federal agency charged with the responsibility of administering and enforcing internal revenue laws. Letter Ruling 9324026 provides an imaginative escape from unrelated business income tax Unrelated Business Income Tax (UBIT) in the U.S. Internal Revenue Code is the tax on unrelated business income, which comes from an activity engaged in by a tax-exempt 26 USCA 501 organization that is not related to the tax-exempt purpose of that organization. (UBIT UBIT Unrelated Business Income Tax UBiT Universitetsbiblioteket I Trondheim (NTNU Library) ) on interest income from a 100%-owned taxable subsidiary. Sec. 512(b)(13) subjects interest income received from an 80%-or-more controlled subsidiary to UBIT. In this ruling, a Sec. 501(c)(3) organization proposed to transfer enough of the subsidiary's stock to reduce its ownership below 80%. The recipient was another Sec. 501(c)(3) organization that was a supporting organization to the transferor. In fact, the same board controlled both organizations. The Service ruled that the transfer will bring ownership below the 80% threshold, thereby eliminating any UBIT exposure. Presumably pre·sum·a·ble adj. That can be presumed or taken for granted; reasonable as a supposition: presumable causes of the disaster. , this will also affect the characterization of other income streams, such as rent and royalty income, also covered by Sec. 512(b)(13). Given the right circumstances, this appears to be a powerful planning tool for organizations with taxable subsidiaries. |
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